U.S. beef prices are under careful watch after a fire damaged a Tyson Foods plant in Kansas, closing it indefinitely.
As a result, total U.S. slaughter numbers have dropped, fueling concerns of a domestic shortage of steak and hamburger meat, which has commodity and retail prices in flux.
An indefinite shutdown spurred meat buyers for grocery chains and others into a frenzy last week, because Tyson's sprawling factory at Holcomb, Kan., was capable of processing about 6,000 cattle a day, or 5% of the total U.S. slaughter.
In other words, Jason Apple, an animal science professor at Texas A&M Kingsville, said that if the plant is down for more than six months, then that is close to 1 million cattle head off the market.
"It really has an impact," Apple said.
Different commodity and retail markets show the idle plant already squeezing beef industry prices to ensure available supply.
Margins have increased for Tyson and other packers as prices for choice cuts of beef shipped to wholesalers climbed 9% last week to $238.69 per hundredweight after the fire halted production, according to U.S. Department of Agriculture data. Prices rose 44 cents on Monday to $239.13 per hundredweight.
Meanwhile, cattle producers saw prices dwindle with the fire eliminating a key buyer of their livestock.
Live cattle traded as high as $105 per hundredweight on the Chicago Mercantile Exchange on Aug. 9, before Tyson's plant caught fire that night. The next week, prices fell about 5%. They rose 35 cents to close Monday at $100.15.
Derrell Peel, an Oklahoma State University Extension livestock marketing specialist, said this was a pretty predictable market response that creates a couple of imbalances. On the meat side, customers are scrambling to buy all the meat they can -- explaining the higher beef prices -- while some are upset with the lower cattle prices, he said.
"It is almost an overreaction that stimulates the kind of adjustments needed to fix the problem," Peel said, estimating that it won't last long.
"In a matter of weeks we won't be able to see the ripple effects at all," he said.
The U.S. Department of Agriculture has been in talks with Tyson plant management and other stakeholders since the fire. Undersecretary Greg Ibach issued a statement last week, saying they know that production will shift to other plants to accommodate cattle that were originally scheduled for the Holcomb plant.
The Tyson plant was on fire over 12 hours before being extinguished Aug. 10. The facility sustained serious damage and may not be operational for several months, Tyson officials have said. No one was injured in the fire.
"[The] USDA is prepared to provide additional staffing necessary to support grading and auditing services at the alternate locations," Ibach said Thursday.
With other facilities offsetting the workload of one damaged plant, Apple said he was concerned about increased transportation costs. The nearest Tyson Foods beef plants are in Amarillo, Texas, and Lexington, Neb., which are both more than a three-hour drive from Holcomb.
"That means if you are Tyson and you are running more cattle in Lexington, Neb., but you've got to make up for this 6,000 a day, that requires some hauling," Apple said.
In addition, competing packers such as Cargill and JBS are seeing opportunities to increase production with one plant down, Peel said.
The USDA's Packers and Stockyards Division will continue to monitor cattle prices and procurement activities, and remain vigilant for any livestock marketing entities seeking to unfairly take advantage of the situation, Ibach said in his statement.
"USDA is closely monitoring the effects," Ibach said.
Business on 08/20/2019